Money: Past the Peak?

"I hope the economic environment and financial conditions will prove so stable as to make another increase in the prime rate unnecessary." So Chairman John J. McCloy of Chase Manhattan Bank last week told stockholders. McCloy had plenty of evidence that the months-long climb in money costs, which has carried the prime rate to 5%, highest in nearly 30 years, has spent its force. At its usual weekly auction of 91-day bills, the Treasury was able to sell at a yield of 4.12%, down from 4.44% a week earlier and half a point under the high of 4.67% in December. In the auction of 182-day bills, the Treasury came out with a yield of 4.61%, down from 4.67% a week earlier and two-fifths of a point under the peak early in January.

The easing was partly seasonal due to the post-Christmas payments to banks by retailers and others who had borrowed to finance their inventories. But Treasury experts also see longer-term influences at work, notably the fact that the demand for credit since the steel strike ended has not been so big as anticipated.

The shift in the money market was sharp enough to enable the Treasury to change plans in refunding some $11.5 billion in debt. Three days before the refunding, the Treasury had expected to offer 5% notes. Instead, it announced that it will replace the two issues of maturing securities with four-year, nine-month notes and one-year certificates. Both will carry 4 7/8% coupons. While the saving was small, it was the first time in months that the Treasury had been able to drop its rate on short-term securities. Nobody in Washington or on Wall Street last week knew whether rates would continue to ease. But for the first time since November prices of outstanding U.S. securities had risen to the point where no issue was selling to yield as much as 5%. Mirroring the improvement in governments, corporate bonds also rang up price gains.

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